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When people talk LVR, do they mean equity to debt or equity + liquid assets to debt?

Discussion in 'Property Finance' started by jaybean, 11th Aug, 2015.

  1. jaybean

    jaybean Well-Known Member

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    e.g. I could have an 50% LVR position if I compare equity to debt.

    BUT if you look purely at easily accessible liquid assets (cash, LOC and stocks), my position is really like 80% LVR (just an example).

    I'm curious is there a hard and fast rule - is there an agreed upon definition of LVR? Is there an analogue to net vs. gross yield?

    This is what I do for my planning:

    For the purposes of general portfolio assessment I simply use assets to debt.

    For the purposes of risk management I use ONLY liquid assets to debt.

    Does this sound about right? Perhaps I'm being too conservative but I do like to know where I stand if crap hits the fan.
     
    Last edited: 11th Aug, 2015
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    $100,000 property with an $50,000 IO loan and a $30,000 LOC = 80% LVR

    Even if they have $50k in the bank it is still an 80% LVR.
    Even if the $30k LOC is undrawn it is 80% LVR
     
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  3. jaybean

    jaybean Well-Known Member

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    You're talking from a bank perspective. I'm talking from a risk mitigation one. I'm thinking there might be different ways for one to view themselves when it comes to risk and assessing where they stand. The reason is because sometimes you hear people criticize others because they have high LVR but then they say no I have a lot of cash. So LVR I've found is misleading sometimes so I was wondering if I'm the only one that has different interpretations of what LVR means depending on context.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In that case the person could always use the cash to pay off the loan. The LVR could be 0% if they did that and didn't use the LOC.
     
  5. jaybean

    jaybean Well-Known Member

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    Yes but a lot of people don't have that much cash...
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    For personal purposes - I always include other assets in the calc.

    The Y-man
     
  7. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Does this mean you only count liquid value as in cash and stocks and not any equity/deposit from your ips to work out your overall LVR???

    If that's the case... assuming someone has no cash or other liquid stocks and a 2mil property portfolio with 50% debt, would that still equate to you as a 100% lvr?? or am I way off...
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    same principles apply though.
     
  9. Art Vandelay

    Art Vandelay Well-Known Member

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    So it's less about LVR and more about a person's debt to net worth? Ie. debt as a percentage of net worth?
     
  10. jaybean

    jaybean Well-Known Member

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    Yes that's right, because if you lost your job you'd be screwed. Again as I said there are many ways to slice this and this is what I do.
     
  11. jaybean

    jaybean Well-Known Member

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    No because you can count equity as part of your net worth.

    What I'm saying is to calculate immediate risk (without having to sell down to access that equity), you'd only look at liquid assets like stocks, LOC's or cash.
     
  12. jaybean

    jaybean Well-Known Member

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    I'm talking about the opposite. I'm not talking about including other assets, I'm talking about ONLY including those other assets (the highly liquid ones).
     
  13. Leo2413

    Leo2413 Well-Known Member Premium Member

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    I think your tangling risk mitigation measures with LVR calculations imo. I would use cash, buffers ,stocks, LOC for risk mitigation purposes and leave LVR out of it. Yes, a lower LVR does reduce risk, but I wouldn't mix the two personally when calculating a lvr. But as you said, many ways ppl slice a pie.
     
    Last edited: 11th Aug, 2015
  14. jaybean

    jaybean Well-Known Member

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    Yes you could be right. The reason why I do this I guess is because I calculate my actual LVR and it paints a much better picture than I would have expected. Perhaps I should take a win as a win.
     
  15. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Yeah I understand where your coming from. The only thing to me is, lets say you have a 3mil portfolio with an LVR of 50%, and say total liquid assets of $50,000. That would leave you with an LVR of 98.4%, although in reality you have around 1.5m dollars net worth on a 3 mil portfolio...

    To me it just skews the actual risk reality too much...that's my main concern.
     
  16. Bran

    Bran Well-Known Member

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    Leo - your numbers are confusing me.
    An LVR of 50% on 3 million is akin to 1.5 net worth.
    Adding another 50k to this makes a 1.55 net worth.
    Where does 98% come from?? It would be closer to 50%, or high 40% if you wanted to pile in your liquid assets.
     
  17. jaybean

    jaybean Well-Known Member

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    Because it assumes you've maxed out your borrowing and that 1.5m isn't easily accessible. So if crap hit the fan you'd need to survive on 50k. This is what this discussion is about.
     
  18. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Gotta read the whole thread mate - then you'll get it, although I doubt you'll like it. :D
     
  19. jaybean

    jaybean Well-Known Member

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    Yes that's true, it's a very glass half empty perspective.
     
  20. Leo2413

    Leo2413 Well-Known Member Premium Member

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